The Age of the Gazelle

Do small companies really create the most jobs? Put that puzzler aside. Instead, focus on a fact no one disputes: most new jobs come from a relative handful of fast-growing companies.

Some of those fast-growing companies are behemoths and are all the more noticeable because so many other giant companies are slashing their payrolls. But the vast majority of job-creating businesses are fast-growing smaller companies -- dubbed "gazelles" by David Birch of Cognetics Inc., a Cambridge, Mass., research firm. Gazelles aren't to be confused with small businesses. Most small businesses don't grow at all. Though gazelles start small, some grow out of the category pretty quickly. Birch estimates that the fast growers represent no more than 3% of U.S. businesses. But between 1990 and 1994, gazelles created 5 million jobs, enough to produce net employment growth of over 4 million in spite of the well-publicized downsizings elsewhere in the economy.

Gazelles defy easy understanding. Consider just a few of the paradoxes that Birch's research has uncovered:

Gazelles are overrepresented in manufacturing and underrepresented in services -- even though all the net job growth is in the service sector. Manufacturing employment has been flat for years while services have been growing. So how can manufacturing have proportionately more gazelles? Well, say you want to start a company that does payroll processing. You'll have competition not just from other small businesses but from giants like Paychex Inc. But start a company to manufacture printed circuit boards, and it's a good bet that industry giants will be glad to contract out the business. That's how Applied Manufacturing Technology Inc., in Orem, Utah, got started: CEO Jim Trent worked for Hewlett-Packard and saw that the niche for small custom manufacturers was big enough to drive a company through.

Gazelles have little to do with high tech. Birch's figures suggest that only about one in every 50 gazelles is truly a high-tech company. The rest are in relatively mundane industries that they have managed to transform into high-growth opportunities. An example? The Rug Barn Inc., in Abbeville, S.C., operates in the throw-rug manufacturing niche, but it has managed to boost its payroll by more than 600 in five years.

The gazelle phenomenon isn't just a matter of finding the right niche. Two companies can start in the same industry at the same time, and one will grow fast while the other languishes. The trucking business includes hundreds of companies that employ no more people than they did in 1990. So how did Knight Transportation, in Phoenix, multiply its payroll more than fourfold in the same period? Answer: gazelles are made, not born. It's all about entrepreneurial smarts and ambition, not luck.

What's a "gazelle"? David Birch's research firm, Cognetics Inc., traces the employment and sales records of some 9 million companies with a Dun & Bradstreet file.

A gazelle, by Birch's definition, is a business establishment with at least 20% sales growth every year from 1990 to 1994 (the last year for which Cognetics has complete numbers), starting with a base of at least $100,000.

Source: Hot Industries, Cognetics Inc., Cambridge, Mass., 1995.

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Gazelles are widely dispersed throughout the economy

Percentage of companies in sector that qualify as gazelles

Agriculture, forestry, fishing

2%

Mining

4%

Manufacturing

5%

Wholesale trade

5%

Finance, insurance, real estate

2%

Construction

3%

Services

2%

Retail trade

2%

Transportation, communication, utilities

2%

Source: Hot Industries, Cognetics Inc., Cambridge, Mass., 1995.

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But they're not necessarily concentrated in the fastest-growing markets Top three job-creating industries, 1990-1994.

Industry

Jobs added (in thousands)

Percentage that are gazelles

Business services

1,199

2%

Health services

887

2%

Eating and drinking places

470

1%

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Instead, they're often found in flat or slow-growing industries Top five industries by percentage of gazelles, 1990-1994